Basics: Management Skills for Marketers
[a] Ethical Issues and Legal Compliance
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- [a] Summary
[a] Ethical Issues and Legal Compliance This chapter examines ethical business practice. Ethics go right to the heart of whether companies and the managers who run them add value to their employees, their customers and society at large. We will look at both sides of ethics: ethical practice that is voluntary, and driven by conscientiousness, and ethical practice that is regulated by legislation. This chapter includes a number of specific for how individual managers and companies as a whole can be more ethical and legally compliant. It ends with a case study about two managers at a top advertising agency followed neither their conscience nor the law and paid a heavy price. [b] Ethics: Two Sides to Every Issue What makes any discussion of ethics so difficult is that any decision can be rationalized. There are two sides to every issue (sometimes more), and often one decision can be made to seem as ethical as another. Is charging a client an inflated, above-market rate for work ethical if they don’t have an issue with your price? On one hand it is “smart business,” on the other it could be considered “gouging” to charge more for the same work. In the marketing world, cases of product misrepresentation are not always clear-cut. For example, in 1990 Volvo ran afoul of the Federal Trade Commission (FTC) when they made a commercial showing their car being run over by a monster truck without major damage to the roof. It came out later that Volvo had reinforced the roof when shooting the demonstration. This seems like a clear case of poor ethics until you consider that the commercial was based on a real-life monster truck show, where, indeed, the Volvo was the only car left uncrushed. To make an ad takes several repeated shots, or “takes.” In order to stand repeated crushings, Volvo reinforced the roof. The fact remains that if you are run over by a monster truck, you are safer in a Volvo. In this light, the company’s actions may be seen as more ethical. Ethical issues often boil down to something we covered in chapter 1: corporate values. Different companies have different values. Ethical behavior can often be judged by whether a company has held true to its values. The common phrase, “Everybody else does it”, does not pass for a corporate ethical standard. Ethical problems do not just occur in dealing with customers, they also occur inside companies on a day-to-day basis regarding employee safety, harassment, promotion, discrimination, etc. Definition Box: Ethics: “Ethics relate to what is good or bad, as defined by moral duties and obligations. Ethics establish a set of rules, based—for the individual—on personal integrity, and—for the organization—on company and industry standards.” Source: Jugenheimer, D. W. and Kelley, L. D. (2009). Advertising Management. New York: M. E. Sharpe, Inc. [c] Doing the Right Thing General Norman Schwarzkopf, who was commander of coalition forces in the First Gulf War, is perhaps more black and white in his view about ethical behavior. He was quoted as saying: “The truth of the matter is that you always know the right thing to do. The hard part is doing it.” He holds that our knowledge of the right thing to do is innate and the ability to do it, especially in the face of resistance, is the greatest test of leadership, military or otherwise. The fact that Schwarzkopf is famous for leading men into war shows just how nebulous discussions of ethics can become. Another relevant quote, which I often use when teaching students about business ethics is “A principle is only a principle when it costs you money.” This underscores how easy it is to do the right thing when there is no cost to you. The real test of management integrity is when you have to pay for your principles, either by spending money or losing out on the potential to make more money by doing something that does not align with your stated values. Taken together, these two quotes remind managers to listen to their conscience, and to let their conscience outweigh popular opinion and/or monetary self-interest when deciding the right course of action. About a year ago, I was teaching a class of graduate students at Syracuse University about business ethics. We did the usual reading, looked at a few case studies and then held a round-table discussion. When I asked the students if they could summarize ethical business in a sentence, one soft-spoken young woman said: “Making a decision that would make your grandmother proud.” In all my years of running companies, working for clients and teaching, I have never heard it put better or more simply. I now talk to students about ethical decisions passing the “grandmother test.” Insert Image 8-2 Title: The Author’s Grandmother Caption: Ethical business at its core is about making decisions with your conscience as well as your business brain. As one of my students put it, ethical decisions are ones you would be proud to tell your grandmother about.
[b] Embracing Regulation Legal regulation takes many ethical decisions out of the hands of individual managers and companies. For the protection of consumers and society as a whole, some areas of business are put beyond the reach of ethical subjectivity. Some businesses, like pharmaceuticals, are heavily regulated. Others, like the cereal industry, are regulated in specific cases, for example, when they market sugary cereals to children. Some industries are very lightly regulated. In many cases, industries have created self-regulation guidelines to police their industries so the government does not have to. What is regulated versus what is not regulated is a function of cultural values, so severity of regulation in many industries can vary greatly from country to country. For example, in some countries alcohol and/or cigarette advertising is banned. In others, they may be restricted in specific areas. In others they may not be restricted at all. The way a product is sold or presented in a highly religious country like Saudi Arabia is significantly different than in a highly liberal country like Holland. We have learned that an ethical culture is important. A culture of compliance is just as important. Regulation can only be truly effective when those being regulated choose to comply, especially when compliance is voluntary. Even when it is not voluntary, governments do not always have the resources to go after every company that does not comply with the letter of the law. To many managers, legal compliance is a bother, which can be seen as limiting their marketing potential. However, corporate cultures that are diligent in compliance often find, by being so, that they are more in tune with their customers. Over time, these companies, by being champions for the protection of consumers, find that they actually win in the marketplace because consumers, over time, grow to trust them. A case in point is marketing to children over the Internet. The swift growth of digital media and the slower pace of regulation allowed many marketers to side-step existing advertising regulations regarding marketing to children in traditional media, like television. Governments in countries like the US, Australia, and Canada did finally step in and adapt the Children’s Online Privacy Protection Act of 1998 (COPPA) requiring commercial operators of websites to obtain “verifiable parental consent” before collecting or disclosing personal information about children under 13 years old. Interestingly, this legislation was based on previously developed self-regulation. The Children’s Advertising Review Unit (CARU) of the Council of Better Business Bureaus had already set the rules—which were already being followed voluntarily by many companies—that became the basis of COPPA. According to Wayne Keeley, director of CARU and vice president of the Council of Better Business Bureaus: “We try to find the common ground between protection of children, which is our uppermost priority, and responsible advertising.” The companies that were already following these guidelines had a big competitive advantage. Professional marketers realize that compliance is always better for business in the long run. In the case of COPPA, it allowed many companies marketing to children to become society’s most ardent advocates for children’s rights and protections. [b] 10 steps to a More Ethical and Legally Compliant Culture For managers trying to build a legally compliant and ethically sound culture, it is gratifying to know that the steps to achieve one are exactly the same as the steps to achieve the other: ethics and legal compliance go hand in hand. LRN, a leading provider of governance, ethics and compliance management solutions, has outlined 10 steps to achieving a more ethical and legally compliant culture, as follows:
Insert Image 8-3 Title: Nestle’s Code of Conduct Caption: Successful companies like Nestle ground their ethical culture in a code of conduct that applies to all of their employees. Nestle’s code includes clear direction such things legal compliance, conflicts of interest, bribery, discrimination and harassment. Tony Miller, former executive vice president of LRN, stated, “Generally, laws and standards of what is considered ethical workplace behavior are common across industries.” He also noted that a big challenge for managers is the incentive and reward structures of most companies: “Too often substantial bonuses are tied to earnings targets, which are easy to measure, while the ability to foster an open culture … is not so easy to assess.” A manager will only be successful in achieving a truly ethical and legally compliant culture if they factor appropriate behavior into employee appraisals and reward systems. (source: Informationweek.com (July 8, 2005). The Ethical Side of Compliance.) Quote box: “Relativity applies to physics, not ethics.” Albert Einstein [b] Case Study: Advertising Executives go to Jail The following is an excerpt from an ADWEEK magazine article, July 14 2005: “NEW YORK: Former Ogilvy & Mather (O&M) executive Shona Seifert today was sentenced in U.S. District Court here to 18 months imprisonment (and two years probation) for her role in a scheme to overbill the government's $1 billion Office of National Drug Control Policy (ONDCP) account to cover a $3 million revenue shortfall on the business. Seifert must also pay a $125,000 fine and a $1,000 special assessment, as well as write a "code of ethics" for the ad industry as part of 400 hours of community service. The case, said Judge Richard M. Berman, was essentially about the "slippage in ethics, and perhaps the absence of a code of ethics." Berman did not specify exactly what should be covered in that code, or how long it should be. It should be written by the time her probation ends. Berman said he read more than 70 letters of support that characterized Seifert as a "hugely successful, high-level executive," but noted that "success in business is illusory unless it is grounded in ethical business practices and those need to be ... instilled in all of the workforce from the top to the bottom." In a tear-choked statement read before the court, Seifert called the five years during which she was investigated and tried "an absolute nightmare," and said she was "truly sorry" for the pain she had caused her family and husband.” (Source: ADWEEK) In addition to Seifert, Thomas Early, O&M’s former financial director, was sentenced to 14 months imprisonment and two years probation in addition to paying $11,000 in fines and fees. The pair was convicted specifically for instructing employees to inflate the number of billable hours they worked on the government’s anti-drug advertising. One of the most damning pieces of evidence against Seifert was an internal email stating: “I’ll wring the money out of them (the ONDCP). I promise.” This article should be truly frightening for any manager or potential manager to read. From all accounts, Seifert and Early were successful and talented managers, yet they lacked a clear ethical compass, which doomed their careers and impinged their liberty. These O&M executives are not unique. On a regular basis, corporate executives are found guilty of such things as rigging bids and falsifying reports. They also have another thing in common: almost invariably they staunchly defend their actions. They paint themselves as scapegoats who are just doing “business as usual.” In fact, when Seifert delivered her court-ordered code of ethics, it was dedicated to “frontliners everywhere.” She wrote: "If you are a frontliner, you are more likely to find yourself in the line of fire. And it may be better for others if you take a bullet." (source: MediaWeek 9/2/2005). Even in the face of a unanimous guilty verdict and a prison sentence, her focus was on how she had been victimized as opposed to her inconsistent ethical approach and the victimization of both her staff and her client. If we apply the simple rules we have learned in this chapter, it is easy to see that things could have, and perhaps should have, turned out very differently for Seifert and Early. Insert Image 8-4 Title: Press Release from the United States’ Attorney’s office announcing indictment. Caption: This is a company’s worst nightmare. Ogilvy & Mather’s executives were indicted and found guilt of fraud for overbilling the Office of National Drug Control Policy (ONDCP). Companies that develop a strong ethical culture through strong core values and constant education can avoid this scenario.
3. When Seifert talks about “frontliners” who “take a bullet, does that make you believe that her actions are an anomaly or part of a wider ethical problem at the company. Chapter Discussion Questions: 1. Are there times when a company’s survival financially overrides ethical considerations? 2. If voluntary compliance is just that, voluntary, why might a company want to avoid any deviation? 3. If employee and management education is critical to compliance, how often do you think internal training should happen to help guarantee compliance? Chapter Student Exercises: 1. Look at the 10 items in the ethics self quiz. Rank them in terms of which ones you think are most important. 2. Go online and look up Nestle’s code of conduct. Does it cover every ethical issue? Do you think anything is missing? 3. Assume you are starting a new company and your code of conduct can have only two items. What would they be? Suggested Further Reading: Jeffrey L. Seglin (2000). The Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart. Maine: Smith/Kerr Associates. Laura Hartman (2002). Perspectives in Business Ethics. New York: McGraw Hill John P. Kotter and James L. Heskett (1992). Corporate Culture and Performance. New York: Simon and Schuster [a] Summary This book has examined the fundamentals of business and management. Specifically, it has looked at the core areas managers in marketing must master in order to lead successful careers: Basic Business Economics—The primary goal of most marketing is to sell products or services. The reason marketers sell them is to make profit. Managers need a working knowledge of the interplay between supply and demand in order to maximize those profits. Beyond supply and demand, successful managers often look at a variety of management functions, like negotiation, through an economic lens. Vision, Mission, and Leadership—In order for a manager to be great, they need to be a leader. Leaders by definition have followers: it is not just something you do, it is something that is bestowed upon you. Leadership at its core is about setting a course that others are willing follow. Great leaders have a way of articulating their vision and their team’s mission in a way that is simple and imaginative. Competitive Business Plans—Competition is about strategy. Superior strategies create competitive separation and help products win in the marketplace. There are a number of specific tools, such as the SWOT analysis, that allow managers and their teams to quickly and effectively sift through information and distill it into effective strategies. Great strategies also include consumer insights to make sure they will resonate with the people who will buy the product. Brand Identity and Shareholder Value—Successful marketing infuses products with values, ideas and images that make them hard to substitute with other products because consumers become emotionally engaged with them. This is the process of turning a product into a brand. Once established, a brand can command significantly higher prices and generate economic value way beyond their actual production value. Successful managers know that brands matter, a lot. Managing People—Managing people goes beyond setting the course, vision or mission. It entails inspiring people in small ways every day, and managing conflict in a constructive way that builds a sense of shared values. Ultimately, it is about culture creation. In order to manage people effectively, managers need to have a grasp of basic human psychology to help understand why people do the things they do, and how to turn negative impulses into positive ones. Handling a Crisis—Crises are the times when managers prove their ultimate worth. Although every crisis is unique, many of the issues that need to be handled in a crisis can be planned ahead (e.g., who will speak for the company to the media during the crisis). When a company has a strong sense of what it is, and what it is about, and combines that with clear plans about what to do in the case of a crisis—any crisis—then its managers have an excellent chance of weathering stormy seas. In some situations, a crisis handled with skill can actually leave a brand better off than it was before the crisis happened. The Numbers—Having a firm grasp of numerical relationships is vital in management. You need not be great at math, but you need to understand the basic financial and analytical relationships that indicate whether your company is financially sound and whether your product is succeeding in the marketplace. The key is to find simple tools—like dashboards—that simplify the numerical information allowing your team to focus on what is important when they are awash in a seeming sea of data. Ethical Issues and Legal Compliance—Success in marketing and management is often measured in dollars and cents, as it should be. However, all the financial success in the world rings hollow unless we work in a way that is fair and contributes to society. Ethical issues are not always that clear cut, so it is important for management to provide well articulated corporate values that allow employees to do the right thing every day. Legal regulation is more clear-cut, but it is important for companies, managers and employees to actively comply with regulation—and realize that doing so makes them better—rather than trying to skirt unpopular or unprofitable rules or regulations. [b] Final Thoughts One common theme of business writers and philosophers is recognition of the high amount of randomness in the world. While no book on business and management can make the world a less random place, I hope this one can give you the tools to control those things that can be easily controlled in the workplace, and to help ensure that the truly random things that happen in the workplace have maximum impact when they are positive and minimum impact when they are negative. I like to call my philosophy one of “applied serendipity.” When we create a corporate culture that protects its core values relentlessly, while consistently encouraging managers and employees to push the envelope and try new things, we have the best chance to create a sustainable company that is good for society. A company that is good for society is one that inspires its employees, protects its customers, cares about the future of the planet, grows consistently year after year, and makes a lot of money doing it. Capitalism is about making money. We should not be ashamed of that. In fact we should recognize its benefits. As we learned from the economic stagnation of Eastern Europe in the 20th century, lack of a profit motive means the production of fewer resources. Fewer resources means less for everybody, especially those less priveledged. Capitalism is an incredibly powerful force. The question is: What kind of impact are companies having while they make that money? My friend and colleague Adam Werbach made the transition from full-time environmentalist to sustainability consultant for businesses world-wide. For someone who was the youngest-ever president of the oldest environmental organization in the United States—The Sierra Club—and a worldwide board member of Greenpeace, this could be considered a sellout. What Adam noted, however, was how tremendously powerful the corporate sector is. And when that power is pointed in the right direction, its impact can be truly awesome. After he had tried unsuccessfully, as an environmentalist, to get New Orleans to fortify its wetlands and rebuild levees in the late 1990’s (he was given a ceremonial key to the city for efforts, but achieved little else), he watched, crestfallen, as the Katrina disaster unfolded less than 10 years later. The experience gave him an epiphany: “As I kept watching the news, I noticed that supplies from Walmart seemed to reach the victims faster than the federal government’s aid. Then the…big idea hit me: the corporate sector has the incentives, operational know-how, scalability, and ingenuity to respond to the global challenges we face today, challenges on all four fronts—social, environmental, and cultural.” After reading this book, I hope you have some new tools to ensure your success as a manager. I hope, like me, you will be inspired by the words of Adam Werbach and put them to the best use, for all of us. Download 406.07 Kb. Share with your friends:
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